Title 101. Chicago Title Insurance Company. An Updated Primer for Attorneys and Paralegals in Real Estate Practice. (Revision 3)

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1 Title 101 (Revision 3) An Updated Primer for Attorneys and Paralegals in Real Estate Practice Chicago Title Insurance Company 2009 Chicago Title Insurance Company

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4 Table of Contents Chapter One - About Title Insurance The Nature of Title Insurance The Approved Attorney System The Closing Protection Letter Chapter Two - Title Search Basics The Purpose of a Title Search Preliminary information The Search Period Full Search Marketable Title Act Search Tacking Shortened Searches The Search At the Register of Deeds The Indexes Creating the Chain of Title Gaps and Missing Links Searching Outs About Outs At the Tax Office At the Office of the Clerk of Superior Court The Judgment Search Chapter Three - Title Insurance Commitments and Policies The Concept of Title Insurance Why is there Title Insurance? What is Title Insurance? What Title Insurance is NOT! The Title Insurance Commitment The Body of the Commitment Schedule A Schedule B Policy Language Incorporated by Reference The Title Policy ALTA Policy Forms Covered Risks Exclusions from Coverage Conditions and Stipulations Schedule A Schedule B Short Form Policies Title Policy Endorsements

5 Chapter Four - Various Other Issues Decedent s Estates Mortgage Loan Payoffs Mobile Homes Mortgage Fraud Signatures and Acknowledgments Marital Status Mechanic s and Materialmen s Liens Surveys Powers of Attorney Ethics and Real Estate Practice Re-Recordings, Corrections and Cures Appendix

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8 About Title Insurance A title insurance policy provides coverage to an insured owner for unknown or undisclosed title matters that occurred prior to the effective date of the policy. The owner's coverage under the policy lasts for as long as he or she owns the property or has liability under warranties given in a later deed. A title insurance policy is not a sufficient substitute for good title, especially in circumstances where the title problem is caused by failing to make sure that all important matters are taken care of at or before closing. Title insurance is not a guarantee that the title is good. Its coverages are in the nature of an indemnity (and potential defense costs) if the insured lien or title is defective. Many purchases, refinances and foreclosures are delayed because of title matters, even though covered by the policy. The Nature of Title Insurance A title insurance policy provides an owner of an interest in real property or a lender with a security interest (lien) in real property with protection against loss resulting from a defect in title to the real property. The protection is provided by affirmative assurances regarding the following items: Vested ownership Access to the land No pre-existing undisclosed liens or encumbrances Unmarketable title

9 For a loan policy: Insured lender s deed of trust is valid, enforceable, recorded in the public records and, therefore, has priority over any other deeds of trust, judgments, claims of ownership or other matters except as shown on the policy. Title insurance, by its nature, is a risk elimination form of insurance in contrast to the assumption of risk involved in virtually all other lines of insurance. A policy of title insurance looks backwards from a specific moment in time. It insures an owner or lender against loss or damages arising out of defects to or liens on title which are not excepted or excluded in the title policy and that occurred prior to the issuance of the policy. At or before the closing, the attorney will perform a search of the public records and either handle issues at closing or discuss coverage options with the title insurance company for any known risks found by the search (such as outstanding deeds of trust or judgments), -- thus the term "risk elimination." By way of contrast, casualty insurance (i.e., car, homeowner, life) covers matters which occur after the policy is issued and during a more limited coverage period (typically, one year). Casualty insurers assess the potential risks an insured presents based on their past history and statistics on the type of losses, so they can calculate the probability of future occurrences for the current insured's policy. Casualty insurance also typically requires payments made on a routine basis while there is only a one-time premium for title insurance. The Approved Attorney System In North Carolina, the approved attorney and the title company work together for the purpose of furnishing the purchaser or lender the protection of title insurance. The North Carolina legislature sanctioned the existence of title insurance companies for the purpose of furnishing information in relation to titles to real estate and insuring owners and others interested therein against loss by reason of encumbrances and defective title. NCGS (a). However, a title company cannot issue a title insurance policy unless and until the title insurance company has obtained the opinion of an attorney, licensed to practice law in North Carolina and not an employee or agent of the company who has conducted or caused to be conducted under the attorney s direct supervision a reasonable examination of the title. NCGS (a). In some states, the title insurance companies perform the title work and close the transaction or the attorneys act as agents for the title companies and issue title policies themselves. In North Carolina, however, since the approved attorney

10 About Title Insurance cannot be an agent of the title insurer, title work must be conducted by an independent attorney. In order to become an approved attorney for a title insurance company, the new attorney needs to contact the title insurer and request an approved attorney application. The application is usually a 4-5 page document which asks, among other things, for references, real estate experience and the evidence of malpractice insurance. The addition of an attorney to the list of approved attorneys is based upon the recommendations of the local bar and fellow citizens as to the attorney s moral integrity, legal ability and experience. Attorneys who fail to make efforts to provide quality legal representation to their clients and to the title insurer may be removed from the company s list of approved attorneys. Removal of the attorney may impair the ability of the attorney to practice real estate law due to the typical lender requirement of insured closing protection (below). Closing Protection Letter (sometimes called insured closing letter ) Once the attorney is approved, the title insurance company can issue a closing protection letter (a CPL ). Closing Protection is an additional assurance to the lender and the owner that the named licensed North Carolina attorney is approved by the title insurer as of the date of the letter, and that the title insurance company stands behind the attorney s promise to comply with written closing instructions regarding title, gathering of required documents and collection and disbursement of lender funds. However, the lender may not be protected against actions taken by or at the request of the lender contrary Helpful Hints: to official closing instructions. Lenders and attorneys should be very careful about 1. Take all requests from lenders seriously. 2. Read and carefully follow the closing instructions. 3. Do not make changes to the closing instructions without WRITTEN authorization from the lender. documenting authorizations given to attorneys, assuring that attorneys agree to comply with both written closing instructions and the requirements of the commitment and that funds to be collected and disbursed are adequately itemized in written closing instructions or memoranda signed by all parties. Many closing protection claims are denied because of failure of the lender to follow its own instructions or because the closing attorney received permission

11 to do less than a fully responsible job as long as the title company will cover it when the title company is never advised of the deviation!! In addition, many claims occur simply because the closing attorney failed to obtain written confirmation of a change by the lender in the closing instructions. Many closing protection claims result from failure of the attorney to respond to document requests after closing. The most common of these claims are for: 1) failure to obtain the final title policy in a timely fashion; or 2) failure to perform post-closing follow-up such as submitting complete closing packages in a timely fashion or failure to assure paid deeds of trust are canceled of record. The attorney must be certain to comply with requests for documentation from the lender after the closing to prevent claims from arising.

12 Title Search Basics Before We Begin We offer this guide as an introduction to the process of searching title and that anyone desiring to become an effective title searcher do so under the direct supervision of a licensed North Carolina attorney. The Purpose of a Title Search When discussing why we conduct a title search, there really are two answers that should be considered. The first answer is that a client, whether an individual, a lender or possibly both, has asked the attorney for information on the title to a piece of real property. The client has the reasonable expectation that the search performed by her attorney will provide that accurate information the client needs to make reasoned decisions to buy, to convey, or to accept real property as collateral. An attorney, who has been retained to conduct a title search must, in fact, conduct a title search and must inform the client of any limitations on the search performed by the attorney (See Rules of Professional Conduct RPC 99). The searching attorney is the one with ultimate responsibility for the quality of the title search. Accordingly, attorneys and their paralegal staffs must understand the difference between a full search and a limited search and always make certain that the search conducted meets the client s expectations.

13 More pragmatically, we conduct a title search to determine the owner of the property and what impediments there may be on the title to the property. In this manuscript, we will try to describe many of the steps necessary to conduct a proper search. Preliminary Information Before beginning a title search, it is important to verify that you have the correct legal description or property address and current owner s name. Whenever possible, try to gather the following information and verify it with the buyer/borrower, seller, and/or the lender: 1. The full name(s) of the owner(s). 2. The property address. 3. County 4. Copies of unrecorded maps or surveys 5. Legal description 6. Deed Book reference to deed into current owner 7. Map/Plat book references Before heading off to the Registry to do the search, also check within your office to see if the office has previously searched the tract. This can save you a great deal of time at the deed vault if you only need to update from a prior search. You are encouraged to begin a system of master files if you are on your own or to learn the system already in place at your firm. If the transaction for which the search is to be conducted is a purchase, the lawyer should also be certain to collect an executed copy of the purchase contract. It is important that the closing attorney examine the contract in its entirety not only for matters pertaining to ownership (and therefore the beginning point for establishing a chain of title), but also to determine any other conditions there may be to closing. If the transaction for which you have been retained is a refinance, be certain to obtain documented evidence from your client and his or her lender regarding the property they intend to use as security for the loan so that you are clearly searching the correct property and encumbering the correct property which all parties intend to secure the lender s loan.

14 Title Search Basics The Search Period While the State Bar ethics rules permit tacking to prior title policies in the context of real estate conveyances and refinance closings and the practice of tacking is presumably within the standard of care required of closing attorneys, it should not be confused with searching a title. Obviously, much of the process otherwise required is eliminated if you tack onto an existing policy. As the closing attorney, you are charged with the responsibility for the quality of the search that is committed. Accordingly, you should not only make certain that you understand the difference between a full title search and a limited title search, but that you also make your staff and clients aware of the differences. Title searches can be broadly categorized into four groups. A discussion of each follows. Full Search Generally, a full search is considered to be for a period of years. By conducting a full search, the attorney is most likely to discover matters that may affect title. Absent disclosure to the client of a lesser search, a full search is probably the standard. A full search seeks to cover the 30 year period under the Marketable Title Act (NCGS Chapter 47B) as discussed below and also to locate record matters that may affect title under the numerous exceptions to the act. Marketable Title Act Search A search of at least the period of the Marketable Title Act, NCGS Chapter 47B (i.e., back to a deed recorded at least 30 years prior and any instrument referenced in that deed) is the second category. An effective real property practitioner must be aware of the Marketable Title Act, its exceptions, and its implications in order to complete an effective title search. That act and its exceptions are beyond the scope of this manuscript, as a proper discussion would be lengthy. It is noteworthy that most title insurers will consider a 30+ year search to be a full search. The Marketable Title Act reduces the risk of certain claims but does not eliminate all risks. The decision of a title insurer to insure is

15 frequently based on risk and market advantage and should not be confused with a full search or with the lawyer s obligation to the client. Tacking Tacking was not generally accepted as a valid practice until very recently and within the last fifteen or twenty years following the widespread use of title insurance to protect against risk. The practice of tacking to a prior policy has been sanctioned by the North Carolina State Bar (RPC 99) so long as the lawyer discloses the limited search to the client. The disclosure is not required to be in writing but you are encouraged to give the disclosure in writing and in adequate time prior to closing to perform a full search if requested by the client. When tacking to a prior policy, one should always review the prior title policy carefully. The prior policy should be an owner s policy, not a loan policy. Ethical Requirement: When tacking, the lawyer is obligated to disclose to the client the precise nature of the service being rendered RPC 99 RPC 99 notes that since title insurers frequently omit exceptions in mortgagees policies that would [otherwise] appear in owners policies, tacking should be limited to owners policies. Furthermore, the prior policy should be reviewed carefully to ascertain that the exceptions contained in the prior are acceptable as the title insurer will very likely include them in any new commitment or policy. Some such items may need to be addressed at or before closing to have them removed. When tacking, always try to be certain that you are not tacking to a policy issued based on a limited search or shortened search. Be very wary of exceptions to matters of record prior to or other broad exceptions to easements or servitudes of record as they may indicate that the policy was issued by the insurer based on a very limited search. One should not tack to such a policy. Shortened Searches It is difficult to simply define a shortened search other than to say that it is something less than a full search and not a tack to a prior policy. In order to employ shortened searches one must clearly abide by the disclosure requirements of the Bar and disclose the fact that a shortened search was performed. Shortened searches may include searches to the deed into a developer for a subdivision tract or one-owner searches. Title insurers may

16 Title Search Basics agree to insure based on these shortened searches but one should be very aware of the exceptions that the insurer may choose to take particularly if an owner s policy is sought. Be certain, should you adopt this practice, to clearly understand the needs of the client and the effect on the policy that may be issued by the insurer. One must also be very careful when tacking to a prior title letter ( PTL ) issued by a title insurer. PTL s frequently mean that the insurer does not have a policy on the particular lot that is being searched. Very often, the title insurer will compile exceptions from other lots for which it has title policies and allow an attorney to tack to its PTL. One should always inquire of the title company to determine if there is a policy behind the PTL. Where there is not, the attorney s ethical obligations to his or her client may dictate not using the PTL. Tacking for Rate Notwithstanding the ethical obligation of the attorney with regard to the search period, it is important to consider that although one may choose not the tack to a policy for title, any prior policy may provide the basis for a reissue rate from the insurer. Reissue rates offer a significant savings to the client and should be considered whenever possible. The Search A typical title search is actually composed of searches of at least three different sources of information. Title history is found at the Register of Deeds for the county in which the property is located. Judgments, liens, estates, lis pendens and special proceedings must be searched at the office of the Clerk of Superior Court in the county. Taxes and assessments should be checked at the tax assessor's or collector's office in the city (when applicable) AND the county in which the property lies. Only by searching each of these records can you be certain to ascertain all of the possible title issues that must be reviewed by the attorney in giving a title opinion.

17 At the Register of Deeds The Indexes There are two separate indexes kept at the Register of Deeds, the Grantor Index and the Grantee Index. The Grantor Index is an alphabetical listing of parties named as grantors in deeds, deeds of trust, easements, restrictions, etc. The grantor is the party making a conveyance or an out as they are commonly called. Sellers, borrowers and declarants are common examples of grantors. Conversely, the Grantee Index is an alphabetical listing of the party/parties named as grantees in deeds, deed of trust and other documents of conveyance. The grantee is the party receiving the conveyance from the grantor. Note also that registries may also have other books that provide useful if not vital information. These sources may include corporation books, map or plat books, lot/block books and Department of Transportation rights-of-way records. These additional indexes can be both informative and important to a complete title search, so be familiar with the registry in each county where you will search titles. Creating the Chain of Title The first step in the actual search is to establish what is commonly called the chain of title. The chain is a list of all of the owners of the real property over a span of time. Obviously, a chain of title could be very long indeed. The necessary length of the chain of title should be established by policy in your office and is discussed hereinabove. The chain of title is established by a search in the Grantee index in most counties in North Carolina. It begins with the name of the present owner of the property and looks backward in time. By entering the name of the current owner in the Grantee index, you will usually find the name of the Grantor that conveyed the property to the current owner Sample Chain of Title Molly Ringwald to Fred Sanford Deed Book 1190, Page 1011 Al Pacino to Molly Ringwald Deed Book 1008, Page 865 Joe Dimaggio to Al Pacino Deed Book 909, Page 401 Al Capone to Joe Dimaggio Deed Book 666, Page 666

18 Title Search Basics and you have established the first link in the chain. Thus, if your current owner is named Fred Sanford, you would search his name in the grantee index to find the deed into Fred from Molly Ringwald. Then, to find the next link, you would search Molly Ringwald in the grantee index to find the deed into her from Al Pacino. Repeat this process until you reach a transaction that occurred at a point in time far enough back to establish the necessary length of your chain (ie. 30, 40 or 60 years). Gaps and Missing Links When establishing a chain of title you will too frequently encounter gaps or missing links. You are not free to ignore these missing links in the chain of title, but rather you should proceed to other sources of information that may help you locate the missing link. There should be some evidence in the public record creating a continuous chain of title or that in and of itself constitutes a defect in title that must be addressed. There are a number of potential sources of information for you to review that may provide you with the missing link in your chain of title. A. Estate Files One way real property is transferred other than by deed is through transfers occasioned by death. Pursuant to NCGS 28A-15-2, title to real property passes to the heirs of a decedent upon the death of the decedent subject to being reclaimed by the personal representative of the estate for the payment of claims of creditors of the decedent. Specifically, NCGS 28A-15-2(b) provides: Real Property. The title to real property of a decedent is vested in his heirs as of the time of his death, but the title to real property of a decedent devised under a valid probated will becomes vested in the devisees and shall relate back to the decedent s death, subject to the provisions of NCGS Accordingly you may need to locate the estate file for a grantee in your chain of title if there is no evidence that the grantee transferred the property to his successor by way of deed or other recorded instrument. If

19 the decedent did not die in the county in which you are searching title to the property, there may or may not be an For a more thorough discussion of decedent s estates, see the Decedent s Estates segment of this manuscript below. estate file located there. Therefore, it may require additional research on your part to ascertain whether a particular individual is in fact dead and if so, where his or her estate was probated. There should be some record evidence of his or her death in any jurisdiction where he or she owned real property. Ancillary administrations are frequently overlooked by personal representatives. There are procedures provided for by statute to establish ancillary estate administrations. However, those procedures are a topic for another time and are not addressed by this manuscript. Just be mindful that additional work may be necessary on your part or the part of the seller s attorney to eliminate any gaps in your chain of title that result from the death of an individual previously having owned the property for which you are searching title. Accordingly, if you encounter this situation you should review the estate s administration procedures set for in the general statutes to make sure that your title is clear. In the appendix you will find a rather simple abstract for estate administrations that will assist you in determining that compliance with the statutory requirements occurred. B. Special Proceedings It may be that a gap in your chain of title can be eliminated by examining the Special Proceedings files. The appointment of a guardian for an incompetent, a partition proceeding, and name changes are examples of special proceedings that may affect title. C. Foreclosure If title to a particular property was not transferred by a previous owner by deed, it may have been the subject of a foreclosure action. Evidence of a foreclosure proceeding will may appear in the Special Proceedings files but may also appear at the registry. You must have a good working knowledge of Chapter 45 of the General Statutes such that you are able to determine if any link in your chain of title located through a foreclosure is valid. Like estate administration, foreclosure is a topic in and of itself and is not within the scope of this manuscript. You will find a Foreclosure Abstract in the appendix to this manuscript that you may find helpful in determining the effectiveness of the foreclosure action for transferring title.

20 Title Search Basics D. Civil Actions Occasionally title to real property has been transferred through some form of civil action. Examples include judicial foreclosures, execution sales, and conveyances pursuant to Rule 70 of the North Carolina Rules of Civil Procedure. Accordingly, if you cannot otherwise locate a link in a chain of title you should examine civil actions involving a particular predecessor in title to see if title passed through court action. Always take note of pending civil actions. While civil actions do not typically affect title except where a lis pendens has been filed, they do occasionally result in judgments that will attach to all property of the judgment debtor. If you note pending civil actions be careful when updating judgments prior to recording!!! E. Tax Office Records In many counties, the local tax office will keep limited (sometimes detailed) title information. This is frequently an invaluable shortcut to locate a missing link. Inquire in your local tax office to see what information they may have. However, also remember that the information at the tax office is NOT sufficiently reliable for the basis of a title opinion. Searching Outs After completing the chain of title, the search is finished by searching forward in the Grantor Index from the earliest grantor named in the deed which is the starting point of the chain of title (above), searching until they conveyed to the next person in the chain of title, then searching the Grantor Index in that person's name, etc. In the search forward, you will be looking for so-called outs or out conveyances by each grantor in the chain. In this portion of the title search, you may find some of the following: Deeds of Trust Satisfactions Restrictions Easements Rights of way Foreclosures Sheriff s Sales Boundary Agreements Plats Timber / Mineral conveyances Powers of Attorney When searching outs, it is very important to keep an accurate record of all outs discovered between the deed into an owner and the deed out of the owner. Note the book and page of each out conveyance so that you may use that information later. Also, be very wary of brief legal descriptions as shown on

21 the index. With some frequency, those brief descriptions are inaccurate in that they often incorrectly describe the property or the interest conveyed, and generally omit references to easements and restrictions that may have been reserved. The only way to be certain that an "out" does not apply to property that you are searching is to look at and read the document itself. This process should be performed for each grantor in the chain of title and all of the outs should be noted. If you have concerns as to whether or not an "out" affects the subject property, report it so that it can be brought to the attention of the supervising attorney and possibly discussed with the title insurance company. About Outs An effective title searcher should be able to interpret the meaning of the various documents that one may encounter when running outs at the Registry. The following sections will cover the more common documents that one may find. The list is not exhaustive as there is no end to the permutations one can discover in the Registry. Deeds Simply defined, a deed is an instrument that conveys an interest in real property. To be valid as between the parties, a deed must be in writing, contain language of conveyance, be signed by the grantor (seller) and must sufficiently identify the interest to be conveyed. To be valid and NOTE North Carolina is a pure race state, meaning that the first party to record with the Register of Deeds a validly executed and probated deed from the record title holder(s) has the superior title, regardless of the date of execution. enforceable against the rest of the world, the deed must also be properly acknowledged before a notary, certified by the Register of Deeds and recorded in the Registry of the county in which the property lies. Each deed in a chain of title should be reviewed for these important components. It is also important to review each deed with a number of other considerations in mind: 1. What type of deed is it? Warranty Deed should contain language that the Grantor owns the property in fee simple, that the premises are free from encumbrances (except as may be shown on the deed) and that the grantor will

22 Title Search Basics WARRANT and DEFEND the title against the lawful claims of all persons whomsoever. Special Warranty Deed should contain language of limited warranty by which the Grantor warrants that the Grantor (only) has done nothing to impair title. Quitclaim or Non-Warranty Deed generally contains no warranty. Here, the Grantor conveys only whatever interest he has and has no liability to the Grantee if he owns nothing. Quitclaim deeds are frequently used as corrective devices to fix title problems. They can be used to convey land for which the title is questionable and they should be reviewed carefully. Correction Deed - When errors are located in deeds in the chain of title, practitioners have utilized the deed of correction to remedy past mistakes. It is advisable to have the Grantor of a deed of correction release all claims to the property as well as explain carefully the error correction. Also, deeds of correction are best when running to the present owner rather than to a former owner to alleviate any question of whether or not a subsequent deed from a former to a present owner is necessary. It is a wise practice for the examiner to check all out conveyances from all owners in the chain up to and through the recording of the deed of correction to make certain that there are no adverse conveyances that may disrupt the chain prior to the correction of the erroneous deed. Corporate Deed - While a deed by a corporation may be either a general warranty, special warranty or a non-warranty, one must be cautious when reviewing its execution. In order to be binding on the corporation, the conveyance must be authorized by the Board of Directors of the corporation, the corporation must be validly existing (not suspended or dissolved) at the time of conveyance or deed should indicate that it is executed for the purpose of winding up corporate affairs. For a North Carolina entity, the examiner can review the standing of the corporation on the website of the North Carolina Secretary of State ( A corporate deed must be signed by an executing officer (as defined by NCGS and including Chairman, CEO, President, Vice President, Treasurer and others) of the corporation or some person authorized to sign on behalf of the corporation. If a party other than one of the officers specified in the

23 statute executes a corporate deed, the examiner may have to look for evidence of corporate authority, commonly granted by Resolution of the Board, with which the signer can bind the corporation. Please note also that deeds from partnerships, limited liability companies, and other such entities will also require close attention and adherence to the statute and to their structure. Deeds Between Husband and Wife - The real estate attorney must be prepared to discuss domestic law on occasion. A deed from one spouse to the other should lead to questions regarding the marital status of both spouses. NCGS Chapter 39 provides assistance in this area and cannot be re-read too often. The real estate practitioner must be familiar with the advantages and disadvantages of tenancy by the entireties. In particular one must not fall into the trap of assuming that a recorded separation agreement will necessarily eliminate future troubles regarding real property between spouses. There has been some debate considering a deed between a husband and wife and its legal effect. The debate concerns not whether such a deed conveys title but whether such a deed conveys title, including the statutory marital interest provided for in NCGS and NCGS A conservative practitioner will consider the import of NCGS which requires that agreements between spouses be executed by both husband and wife. Many feel therefore that in order to sever the marital interest, a deed must comply with NCGS and be signed by both husband and wife as grantors. Attached in the appendix is some recommended language for inclusion in a deed where the intent is to convey title and sever the marital interest. 2. What interest does the deed convey? One must always be very careful to review a deed to verify that it does not convey an interest of less than fee simple title or less than all of the property. For example, a deed conveying only an easement, a life estate or a fractional interest (i.e. 1/2).

24 Title Search Basics 3. Is it a Gift Deed? Any deed which conveys title to property for no consideration is considered a gift deed. By statute in IMPORTANT A gift deed MUST be recorded within 2 North Carolina, a gift deed must be years of execution to be valid. recorded within 2 years of execution in order to be valid. Often, a gift deed will not state that it is a Deed of Gift. Gift Deeds can be identified by a recital of no consideration, or in consideration of love and affection. Another indicator is the payment of zero deed stamps. When you see these indicators, it is important to verify that the deed was recorded within 2 years of execution. 4. Is the deed properly executed? Did the Grantor sign the deed or did the Grantor s proper representative sign the deed? Consider the case of a deed signed by an attorney-in-fact. There must a power of attorney filed in the county where the property lies and the power of attorney must give specific authority to the attorney-in-fact to convey real property. Consider also a corporate deed that must be signed by an executing officer (as defined by NCGS ) of the corporation or some person authorized to sign on behalf of the corporation. Remember also that a corporation must be validly existing (not suspended or dissolved) at the time of conveyance or deed should indicate that it is executed for the purpose of winding up corporate affairs. The status of a corporation can be verified on the Secretary of State s website at 5. Is the deed properly notarized? Was it signed by the notary, with a seal and a commission expiration date? Had the commission expired at the time of signing? Did all signers appear before a notary and acknowledge their execution of the deed? 6. Is there a sufficient description of the property? The Legal Description contained in the deed, deed of trust, lease or other documents of closing determines exactly which piece of ground the title to which is to be insured and shown in Schedule A of the title

25 insurance policy. The legal descriptions contained in easements, restrictions, plats or other documents found in the chain of title may include the property to be insured, so those descriptions determine whether such items should appear as exceptions we must take in Schedule B of the policy. Therefore, the ability to read, map and understand legal descriptions is very critical. Descriptions come in various styles, contain different types of references and are of differing levels of quality. So, in construing them, courts have established preferences ("rules of construction") about which information is the most reliable, if they contain ambiguities. Be sure to review the appendix entitled How Good is the Legal Description so you ll know and understand these levels of reliability. Deed of Trust and Satisfactions - A deed of trust is used to encumber real property as security for repayment of a promissory note (loan) by a borrower. Under a deed of trust, the borrower (called the "grantor") DEED OF TRUST An instrument by which the property is transferred to a Trustee by the Borrower for the benefit of the Lender (Beneficiary). Deeds of trust are given to secure a debt that is represented by a promissory note. conveys legal title to the real estate to a third party (called the "trustee") to hold for the benefit of the lender (called the "beneficiary") until the loan is repaid. Upon repayment of the loan, the lender must cancel the deed of trust and thereby restore title to the borrower without the necessity of a reconveyance. When the deed of trust is cancelled, a satisfaction is recorded at the registry as evidence of the release of the lien of the deed of trust. The following methods are the most commonly used in North Carolina to cancel a deed of trust of record or release the particular property from the lien of the deed of trust. 1. Presentation of the original Deed of Trust and the original Promissory Note. Both must be (1) endorsed "Paid and Satisfied," (2) signed by the beneficiary (or appropriate officer of beneficiary) and (3) dated by the beneficiary (or appropriate officer) for the date being marked as paid. No recording fee. NCGS 45-37(a)(2) 2. Trustee s Satisfaction. NCGS 45-37(a)(7)c. Form is provided at NCGS and but previous form in NCGS will also comply. No recording fee. (Substitution of Trustee form can be used if original trustee is unavailable. Recording fee same as for deeds.)

26 Title Search Basics 3. Satisfaction by Secured Creditor, NCGS 45-37(a)(7)a. Form is provided under NCGS and , but the prior Certificate of Satisfaction by Note holder authorized by NCGS will also suffice. (NOTE: The Affidavit of Lost Note is no longer required.) No recording fee. 4. Affidavit of Satisfaction by Satisfaction Agent. NCGS 45-37(a)(7)b. If a North Carolina licensed attorney provides the requisite notice to the appropriate secured creditor and complies with the procedures under NCGS et seq., and the secured creditor does not object timely, the attorney can file an Affidavit of Satisfaction, releasing the property from the lien of the deed of trust, though the debtor would still be liable for any outstanding balance and costs on the underlying obligation. Form is provided under NCGS Release Deed executed by trustee, with written approval by note holder. Usually the note holder will join in the execution of the release deed. Standard recording fees for deed required, but no transfer tax. (Substitution of Trustee form will be required if original trustee is unavailable. Recording fees same as for deeds.) These forms are available at the Chicago Title Website: Restrictions Restrictions are provisions contained in real property documents that prohibit, limit or regulate the use and development of land, or provide for maintenance assessments or dues to maintain common areas or private roads. Restrictions are generally found in three places: Separate Instruments. They may be in a separate instrument, such as restrictive covenants or a declaration that may affect only the subject property for the benefit of other adjoining or neighboring property, or restrict a particular tract or subdivision to assure a common development scheme, as in a subdivision; Prior Deeds. They may appear in a deed in the chain of title; or Plats. They may be incorporated in the recorded plat of a parcel or subdivision. A Declaration of Covenants, Conditions and Restrictions may also dedicate easements and may contain covenants providing for assessments, obligations to maintain certain facilities or other conditions or obligations.

27 They may be a part of Planned Unit Development, Planned Community or Condominium documents as well. Chicago Title relies upon the certifying attorney to report the existence of restrictions, whether or not they contain a forfeiture or reversionary clause, building set back lines, limitations on the type of building, assessment obligations, easements, and whether they are use restricted, such as a residential only restriction, and to assure that assessments are paid current at closing and any other issues are appropriately addressed at or before closing, such as rights of first refusal or violations of the restrictions. Plats Subdivision plats are recorded maps, usually dividing a tract into smaller ( subdivided ) parcels, usually identified by Lot, Parcel or Tract number. Usually they are drawn as part of a development of residential or commercial land for sale by a developer. However, they may be drawn and recorded in partitions among co-tenants. The plat is usually referenced as recorded in a Plat Book, a Book of Maps, or other similar indication of the name of these records in the particular county. Plats usually determine boundary lines (with a metes and bounds description) as between the lots and are relied upon for drafting the legal description of the property to be insured, such as Being all of Lot 15 of Windy Oaks Subdivision, as shown on plat recorded in Plat Book 5, Page 15, Moore County Registry. However, in most cases, they are not actual surveys of the property since they typically do not reflect actual improvements, encroachments, parties in possession or other matters physically located on the land. Therefore, plats should not be relied on in the same way that you would rely upon an actual survey of the property. Plats often show roads, common areas and other matters affecting the subdivision, including but not limited to water (ditches, creeks, lakes, and oceans), easements for utilities, access roads (public or private), wetlands, and setbacks. They may show private roads and Plat vs. Survey A plat is typically NOT a survey. Plats typically do not depict existing improvements, encroachments, parties in possession. While plats may create easements, they typically do not depict existing easements or usage by others to cross the land. common areas dedicated to the use of property owners in the subdivision only, or they may actually provide for dedication of roads, parks and utility easements to become public upon completion of construction.

28 Title Search Basics Easements An easement is a right of use over the land of another. Easements can be granted for the benefit of an adjoining tract of land (an appurtenant easement) or for the benefit of an individual person or entity (an easement in gross). There are also easements which restrict the use of land for the benefit of others. These are called negative easements. Appurtenant easements are commonly granted for things such as access, utilities, wells, and septic fields. An appurtenant easement always burdens one tract for the benefit of another tract of real property. An example would be an access easement from a public road across one tract (the servient tract) to another tract (the dominant tract). Although the appurtenant easement rights pass to subsequent owners of the dominant tract ( run with the land ), the better practice is to include appurtenant easements in the legal description of the property to be conveyed to the new owner. Easements in gross are personal in nature, meaning that there is not generally a dominant tract of land that is benefited by the easement (as is Easement in Gross a right in the lands of another for the benefit of a person or entity. An easement in gross is personal in nature and there is no benefited land as with an appurtenant easement. An example of an easement in gross would be a utility easement for electric transmission lines. Appurtenant Easement a right in the lands of another that benefits (is appurtenant to) lands of the easement holder. An example of an appurtenant easement is an access easement across the servient tract to the benefited tract. the case with an appurtenant easement) An example of an easement in gross would be where a power company secures permission to run electric transmission wires across owner s land. Historically, easements in gross have ended with the death of the grantee but there are cases in which it has been determined that easements in gross were both perpetual and assignable. A negative easement prohibits an owner of land from doing something on his land that he would otherwise be able to do. A good example is a restriction limiting the size or type of structure that can be erected on the land. Under this sort of easement, the benefited owner can maintain a civil action to prevent the owner of the land from violating the restrictive provision. Easements are created in several ways. They can be reserved and/or conveyed in a deed, in restrictive covenants or on a plat map, or granted in a

29 deed of easement. Easements created by these means will generally be found in documents recorded at the registry. Easements can also be created by prescription. An easement by prescription is taken in much the same way that land is acquired by adverse possession. To acquire an easement by prescription, the party claiming the easement must show that 1) its use is adverse, hostile or under a claim of right; 2) the use was open and notorious such that the owner of the land would have notice of the use; 3) that the use has been continuous and uninterrupted for at least 20 years; and 4) that the easement can be substantially identified. The possibility of a prescriptive easement might be shown on a survey (e.g. old dirt road or old foot path ) and should always be noted on the title abstract and preliminary opinion. Prescriptive easements should be discussed with the title insurance company prior to assuming that they are insurable. These are frequently litigated, a significant inconvenience to the client-insured, and cases are often lost because of failure to prove the necessary adversity of interest. NOTE: See our Quick Tips for Title Searching in the Appendix! At the Tax Office City and county governments collect much of their operating revenue in the form of property taxes or ad valorem Ad Valorem Tax a tax on the estimated taxes. Ad valorem taxes create a lien value of real or personal property. on real property and therefore close attention must be given to making certain that they are up to date for a period of 10 years. Such liens have super-priority, meaning that they are first in priority over all other liens and are not extinguished by the foreclosure of a deed of trust. Never assume that taxes are paid... always verify it. Ad valorem taxes are determined by applying a tax rate that is established by Ad Valorem Tax Calculation: the county or city to a valuation (Tax Rate) X (Assessed Value) = Taxes Owed or assessed value of the property being taxed. The tax rate is typically determined in the middle part of the year (generally not later than June

30 Title Search Basics 30th). Tax bills are created and released, usually around the first of September of each year. The bills will then be due and payable by the first Monday in January of the following year. Once tax bills have been released, lenders will typically require (and title insurers will generally require on a title commitment) that taxes for that year be paid at closing. Thus, the title policy can be issued without exception for taxes for that year. Earlier in the year, the title insurer will generally take exception to taxes for the year. Beware of city taxes. City taxes may or may not be collected by the county tax office, or may be or have been collected by the county for some years and by the city government for others. If your tract is within the limits of a city or town or within their extraterritorial jurisdiction, be sure to contact the city or town tax collector to verify how their taxes are collected and for what time periods. Similarly, be sure to remain aware of annexation, which can add property to the city tax base resulting in both a city and county tax bill. If you are searching in a county with which you are not well familiar, be sure to enlist the assistance of the staff at the tax collections office. Ask them to verify that taxes are current. The tax office may also be responsible for collecting assessments for various improvements made by the city or county. Assessments are issued for things like water and sewer improvements, sidewalk construction, streets, streetlights, and curb and gutter improvements. Be sure to check for both current and pending assessments. Also remember that certain properties may be subject to exemption from taxation. Property held by non-profit or BEWARE! religious organizations may be totally Be careful to look for property tax exempt from property taxes, so long as the exemptions and deferred taxes which may have to be paid at qualified person or entity owns the closing. property. Elderly owners of property might receive a senior citizen exemption that reduces their property tax liability (See NCGS Chapter 105). This can be critically important if the property is conveyed to a person or entity that does not qualify for the exemption. Farm or timber lands may be taxed on the present-use value rather than the fair market value which is usually the basis for the assessed value. Thus, the farmer gains the benefit of a lower assessed value and, therefore, lower taxes. However, the difference between the taxes due on the present use value and the taxes which otherwise would have been due if the property were taxed at the fair market value remains a lien on the property. The lien includes interest